MFA - Earnings call transcript Q4 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

turn over to Mr. our like now the to conference host, I'd Schwartz. Hal Please go ahead sir.

Hal Schwartz

Good expressions The to morning, this operator. as reflect you, Thank everyone. and expectations today MFA Inc., assumptions contain management's containing identify should, regarding beliefs, conference MFA's used, will, believe, as statements. When operations. not could, information and such may or statements or that are refer to future forward-looking historical anticipate, words, estimate, are in performance statements to nature, forward-looking Financial would which call similar including on discussed intended those expect,

statements and including as of XXXX, Commission. from which statements with forward-looking it described Report Annual those assumptions and XX-K the types they to that may subject file date uncertainties, various known in the XX, MFA's All on Exchange December speak Form year only ended are unknown Securities and on These factors, are for time-to-time reports other made. other risks, of and the

These could those risks, cause differ statements projected, any expressed in uncertainties from that to results forward-looking implied and materially makes. MFA's or actual other it factors

For third in relevant XXXX announcing the release forward-looking regarding MFA's use results. please disclosure see press financial MFA's additional statements, information the quarter of

would I call President, Craig time. your like MFA's Knutson. for CEO you to turn this now to Thank over and

Craig Knutson

today and you management. me Thank Co-Chief Investment MFA With Financial's our I'd morning, of for XXXX other Kristjansson Steve like welcome results and everyone. members senior in CFO; you, Gudmundur webcast. and to Wulfsohn, Good your fourth Hal. to Yarad, Officers; thank interest Bryan you financial our quarter are

year XX.X%. shareholder and MFA return year XXXX for was very good for our a shareholders. Total was the for

quarterly book was with the value of than change the year less book very for X.XX%. Our in value steady largest

assets fair loans is fair their our these our higher million the for investment portfolio, These value We than value, and concept portfolio captures at for value Economic carrying book loan GAAP. value nearly of carrying half represent accounted of value. the approximately which of $XXX introduced the of

market or during ability shares years. to been market Also convertible This million and tool our bond from in for dormant May, to XXXX, almost issued offering the us we had We market the permit. which another program, as our time-to-time into ATM the adding conditions first capital our at raising XX $XXX repertoire. sell refreshed offers raising

was XX We're and MFA across one named nearly regions of from Index. companies companies the is also Bloomberg to proud report a countries select and industries. to XXX This Gender-Equality group that X,XXX XX

on a in different XXXX, to tightening market continuing XX-year the versus environment was XXXX how the late had the Fed a yield was the and today. December raised generally income rates beginning we expecting close market hard it's the of imagine treasury books The fixed was As cycle. year X.XX. ago At

public the cut Fed a the XX-year the of Instead, January the the X, rallied X.XX their drifted by the yield on with of August of way with minutes rates ago half release lower by very in over just with meeting, rates the of Fed first a to the through XX-year X% and as year paused The sharply the year then end low of and dropping as June. August. rates end

at environment benign more but and September interest in months. bout the anticipate rate market the and decisive rate and relatively markets rates have with a relatively now on experienced few stable Markets mid-September, MBS of Agency the in hold for settled Fed foreseeable the seem treasuries October the the to for Markets future. been in intervention last illiquidity cuts of Fed end a surprising overnight funding two for and

not financial investment formidable had on negative accurately environment to thrive that much our rate these report moves MFA this assets, material dependent challenges. tests, mortgage MFA's intentionally in investors continued developments despite impact market but predicting to and unexpected results. is these delighted levered presented For no on interest some we're very strategy

and strategy continued to non-QM, laid a to through groundwork acquisition loans particularly flip, include at investment is in least in rental in beginning further on purchase our partners our their MFA's The single-family be XXXX focus origination which durable grow purchased model. performing loans. proving gained in traction appetite that and XXXX fix as businesses loans we part early we MFA's

mortgage us of U.S. to backdrop mortgage environment, whole a Despite residential residential strong, dependable make investments volume is remains to that as housing of has credit partner the continue provide and reputation labor solid equity. for as whole resilient, stable. is reliable loans economic we constructive loans. buyer the economy source MFA's The and our difficult focus on capital returns significant market enabled

page fourth earnings the Core $X.XX MFA's $X.XX earnings to to also was has January the quarters. was quarter a XX in $X.XX and GAAP XX. fourth in paid turn per quarter. Please we common on for MFA $X.XX dividend X. share now consecutive dividend stockholders a paid

We acquired whole fourth the quarter of XXXX, including billion assets $X.X $X.X of of billion in loans.

by whole the overall with $X investment Our year. portfolio by the portfolio billion during increasing increased over $X.X loan year our for billion

$X.XX to value the the our to end $X.XX of slightly book but XX, $X.XX year book increased Economic at September value at slightly per Our from decreased $X.XX from share.

book GAAP value. X.X% for the X.X% under using quarter return economic Economic Our and was

was year our Please the page purchased performing of XXXX of of purchased investment we most billion quarter as quarter whole active loans. to including The assets of turn billion $X.X approximately X. fourth $X.X

other associated these whole XXXX in newly of as The very with than rather through offerings. bulk directly classes from New loans billion performing is loans. billion originated process $X.X including originators The our generally from from whole loans or acquiring of purchase $X.X asset totaled investments Street we different that

reliable been a capital explore as attractive capital Through while these various and entities to grow including to ability and alliances partner some them in arrangements to provider. to investments source from our able flow investments agreements, we've willingness strategic in support new originators, enabling cases with MFA with

provide stock which our include in additional of investments in minority to whereby range warrants These originators equity preferred equity the common capital. seeking some This form strategy capital for instruments. with our from convertible suitable debt origination most for we purchases in stakes partners to investments consistent approach all is cases

fourth the investments investments the five generated across $XXX we During And of our of $X.X and to quarter, partners during interest before income dividend quarter profits. origination million. these aggregate increased million allocation

Please turn to X. page

on that loans These our credit purchase discussed we a carrying in loans we at carrying have or our as loans held included at balance value. interest held reperforming is Recall our loans beginning or are impaired on value purchased sheet. previously, loans include also in performing loans our loans meaningful As to our newly loans originated investments expanding income. in have purchased impact

all quarter, $XX.X at XXXX to interest income. from million the This $XX.X QX carrying of In fourth loans all compared in million value for is $XXX and up of million XXXX. produced of

at As leverage we loans more particularly residential continue held add to marginally our grow our sheet, value. we on whole balance carrying will

You X.X will overall times of we leverage up whole ticked fourth as additional ratio the $X our borrowing X.X added in on billion times note that approximately loans. to quarter from

was August but financing October And XX. despite interest generally LIBOR cut in One-month was on the X.XX the decline approximately is levels after still around cut the third was following X.XX Fed it on fact nonetheless QX. cuts expensive that Fed during versus LIBOR third even rate this QX expense X, before rate the quarter. whole to rate we lower due This loan our total saw borrowing most

experience about to up ticked we X.XXs X.XX loan monthly actually settling recently. is LIBOR to some late resets as resets December through in And Since lower generally out whole in rates. continue should contractually the these finally tied work and to before the our mid repo LIBOR tailwinds

to begin and moderately our additional of securitization to expect tap which should levels leverage. particularly for provide offer non-QM loans, also We funding markets an benefit higher

credit-sensitive committed resources We credit-sensitive to recognized ourselves our achieve X. turn better outcomes loans, and loans that can and by returns. we sometimes in whole messy Through the Please that asset efforts. significant to of improved we've details complicated immersing page our management managing

As third-party benefit in oversight to involvement good is as tangible and are services direct decision-making. our there a

oversees also loans loans better we've delinquent. other management the a resolutions. well that non-performing purchased believe and us become asset serve portfolio that as and will faster loans that our expertise only result, team Our will acquired but REO this including properties not We as drive

also had the in the called role and continues loan improving team portfolio grow. boosting in efficiencies our class that processes information XX.X%. quarter quarter a played active number for We of on has yield were a bonds asset very Our fourth our to as technology our Non-Agency Legacy this to

And Approximately, billion. currently This this of finally, we to callable or is in doubled MSR-related million additional year of at XXXX. and XXXX. assets now during an of last purchased the stands in portfolio $XX expected XX% has QX become $X.X callable portfolio

our XXXX, other fix asset at and purchased investments When we're we obviously our strategy specifically to turn do continue and to To Please loans, summarize to continue rental. existing increase and we levels, and for expect page our grow will attractive to performing to able non-QM, initiatives so. single-family flip if classes X. in

evaluating always, constantly And we as new investment opportunities. are

Given deals and we our to as have the demonstrated first see past opportunities track are willingness in record size. these among in we new structure the to usually ability the and help invest

which structure As of assets Non-Agency likely look through continue savings. modest some sales optimize our around funding our previously to our will Legacy capital cost to provide execute securitizations and MBS. strategic mentioned we'll We'll diversify

callable prices attractive and at includes a at at bonds levels. part high premium or additional sales low is bonds of mature This lot a with of portfolio of loan round managing sizes sales position little odd-lot sales count upside, of and relatively

and when our pricing We deals portfolio very seasoned spreads issued prices tight is dollar continue newly to manage adding trading and by attractive. CRTs selling CRT at high

page to turn Please X.

about ahead are as growing. loan time-consuming source loans to in growth loans viable. to tend whom partners We to can become assist less through benign of well-positioned environment originated rate migrate We more are to refi most are originations these origination this as the our XXXX. excited we brokers think easy the A continue newly in opportunities

tailwind. together a to unique have reform as in reform envision which optimization reform of GSE GSE should rates discussion earnings new we a with while And make GSE very marginal for provide to up debate. topic is opportunities constant structure to scenario it's like lower investments. not what attractive does no and insight looks open Capital a difficult MFA

quarter. over details results further I'll who the turn for Yarad, now will Steve provide call to on recent the And the most financial

Steve Yarad

Thanks, Craig.

shareholders common share. MFA's per For to was XXXX, earnings quarter, prior $XX.X income dividend net distribution. the quarter the again GAAP covered $X.XX or fourth comfortably and million exceeded of

income period, earnings, earnings share. of was GAAP included Growth core hedges, also certain GAAP in in our investments residential securities higher and losses, investment of on in XXXX, mortgage in quarter, are impact in common net each that per addition which the gains excludes each portfolio, $X.XX and related unrealized

our between metric core QX differences earnings and steadily of GAAP earnings MFA quarterly consistent XXXX, the results. very core with adopting performance, delivered Since in, has improving minimal

largely is MFA's we information our as successful our and of of This X, the highlights, additional strategy of whole which in the and net Please turn investment of to loans. expansion investments, were follows. execution where result the quarter, this residential for income page present

the the quarter. impact one, Net MBS, share in interest common quarter of the Legacy $XX.X resulted redemption, $X.XX of income higher of particularly this which -- additional prior Non-Agency was an income, per the bond and recognition million than interest early

While periods, the have of than had income, it even and on impact would net experienced prior should redemption bond in been interest quarter's occurred. quarter's these not if the noted be was we have that redemptions this this higher, results level fund sequentially higher

in a in increase, Two, whole resulted growth portfolio, our continued XX.X% sequential interest quarter of residential net loan income.

residential net in increased and addition, of from loans, XXXX XXXX. income quarter each In interest whole

across three, a and with having are more portfolio, XX net in discuss noted, by points the cost from our positive funds slides, impact the detail And will in reductions Craig falling on Gudmundur upcoming prior costs quarter. as funding LIBOR approximately basis as of in

resulted was residential per Other fewer lower $X.XX gains. as share, of securities, this in smaller sales income quarter, realized approximately common mortgage

accounted to our loans to continue for significant fair However, our make contribution results. at value, a

in the income liquidations, measured fair [Technical on receipts, was gains other coupon at quarter, loan XX% whole residential As gains Difficulty] the previous reflect on and loans value case of net

million $X.X has portfolio in loan overall were the additional our this for Finally, performing delinquency Despite loss. operating modest growth provisions, credit in and need to expenses quarter. higher, other levels, record a resulted

our of also it management to continues portfolio, grow. We incurred related as higher expenses to REO

be was continues rate. quarter, expense equity, stockholders' to our G&A run with of flat line Our and essentially at X.X% expected in this

that XX, nearly slide results for is increase growth year we in which MFA's loans, was residential is noteworthy What to full fueled of XXXX. and year-over-year by Turning our income, interest as here XXXX I present discussed. XX% previously whole net

Agency loans. value securities, the experienced of combination lower by resulted on fair losses with our addition, for anchored higher, and at market strong fair CRT In income performance reversal, accounted these we XXXX, of the unrealized relatively a holdings substantially conditions value, Further, other volatile prior consistently MBS was in year in in less investments.

to slide the it accounting new helpful an expected current key standard. XX. would on losses MFA, Please to turn impacts be provide credit thought overview We CECL with the of of

We've And The the to report been many standard to new no months beginning working of standard has for the that ready this MFA CECL. on XXXX our be at hard to statements. happy year. I'm implement impact financial adopted

an the But January were adjustment record transition as we to stockholders' on required X of equity, to XXXX. impact adoption,

on estimate level how high affects CECL a investments. As residential credit losses, we overview, loan adoption primarily our whole

very historical forecasts life-of-loan from of used prior losses reserves is were experience. to required only as credit probable, assessed CECL, losses, Under so-called to if model, approach the are XXXX, were booked loss incurred and estimates future a credit expected being different This make using of incurred. of combination loss where we

Consequently, reasonable been of expect, loss under new the under that CECL case estimates approach. would credit the losses and higher it recognized will credit have earlier, to and is be

the summarize classes. CECL impacts our we adoption XX, various of key slide asset on On

performing was You our for required will of purchased estimate reserves credit on largest the see impact our that loans.

The Day million, amount. approximately allowance increasing for equity and the by losses stockholders' on these portfolios one adjustment was that credit transition decreasing, $X.X

$X.XX We to represents book less not GAAP this do year-end that adjustment, financial material which XXXX, position. consider than our value, of

adoption equity. only no presentation balance credit impaired sheet with stockholders' For our on purchased impact CECL loans, affects

needs a income to on portfolio, recognition for Subsequent flows, will using cash rather loss-adjusted contractual basis this be used than previously. determined adoption,

pool for loan we at addition, will a an basis. forward level, account In these going loans than individual rather on

at delinquent for loan on basis, rather individual accounting. is account pool to any lines non-accrual subject loans we on income As level these a recognition

residential yields reperforming each an account securities on, sale on some Adoption choppy basis. this quarter. for available be reported CECL impact our can mortgage result payments in has that may limited we additional of in As loans variability on for

Importantly, we how significant for impact, investments, of in have and securities MBS. our Legacy we do our Non-Agency adoption any not anticipate on CECL that will itself, recognize income including on

under OTTI in reserves loss adjustment is accounting. time over assessments rather In yield. improvements replaces as for that means, addition one helpful in than change credit flow allowance immediately loss accounting This an that to loan cash income lower CECL result that increase

impact of not fair the are Loans so there value from these measured investments income at through on net of new standard, in the adoption no is scope CECL.

will expect primarily Going ways. credit-sensitive forward, investments, we that our CECL affect financial reporting two for in

loans, loan – period. based changes on reserves update loss impact the of acquire potentially And quarter, the in on on income an amount expected loss income. the may the GAAP we cash CECL Firstly, even as recorded flows, loans Depending actual we allowance as in loans GAAP originated of impact for for forecasted losses of of that estimates, required performing loss net based are performance reflected to each portfolio time or loan of our purchase. net periodically the allowance life-of-loan secondly, and/or newly at credit are acquired the record volume is we on

currently in considering We presentation. CECL QX reserves earnings the discuss expect reflect that periodic to in further we how determination changes earnings core of in to and XXXX our are

Economic Accordingly, results. Finally, on GAAP our fair value CECL reported adoption CECL for investments book losses. measurement ongoing of the accounting value on the determination to there loans financial securities and in impact no loan has or our no CECL impact due is of

will of portfolio that, and and fourth Gudmundur for with I investment over our review quarter full Kristjansson, will to details the year. performance call more the turn who And the activity

Gudmundur Kristjansson

Thank you, Steve.

acquisitions exceptional the of XX. for acquisitions quarter fourth we $X.X approximately the billion billion purchased in we and of were approximately the as assets loans whole $X.X page of was quarter portfolio which an by approximately quarter our Most The quarter. grew in $XXX to Turning in million. acquired concentrated

non-QM and whole as continues in XXXX robust was loans businesses pace our of acquisitions to XXXX. by average loans total, was last quarterly whole SFR volume out years. In couple flip in of success approximately This over purchase our $X.X driven be fix great for the building year and our billion acquisitions a

we levels experience NPL/RPL continue across a gain million on $XXX We sold early and CRT $XX approximately MBS for redemptions opportunistically to elevated and Non-Agency of NPL/RPL million. MBS MBS of

Turning to page XX.

our and very executed $X.X Our assets portfolio flip in $X grew acquired billion holdings year. investments and team loans in and our billion total, throughout fix our XXXX was we successfully active of strategy by approximately expanding of of and non-QM SFR investments the XXXX. In

the doubled grew in loans we residential and portfolio XX% of whole Our REO assets year. holdings and our MSR-related by

the Agency CRT reduce of bonds. and and of our portfolio allocate capital investments and also on credit take shrunk prepayment mitigate strategically to million We spreads in $XXX risk MBS to tighter advantage to pre-payment approximately higher-yielding premium-priced XX% risk by year securities sold

Turning to page XX.

non-QM Our strategic continues loans SFR to into fix push bear and and fruit. flip

of loan the into have our quarter remains in SFR growth. portfolio about in been success the driver main from approximately fourth Our of the this end strategy investment of XX% end loans billion at over third these from $X the our has Since quarter. as the flip to our XXXX, of primary XXXX. fix The and non-QM portfolio whole of quarter which incorporating of growth and fourth the third zero to loans, portfolio of XX% has XXXX grown of investment the the grown for reason quarter products

approximately total the SFR for whole loans, of now non-QM portfolio portfolio. addition, approximately loans account In and the XX% flip investment fix and XX% and of

strategy. planning benefit into are clear happy we've loan incorporating progress, on the strategic investment to our made continue extremely from with We our and products these

over risk deliver spread. MFA's attractive credit and strategy, XX. rate which continues interest risk to yield investment page to Turning emphasizes

sensitivity. assets lower positive to benefit fundamentals credit prepayment credit-sensitive from continue and Our

XX and spread Yield X.XX% the to interest on XXX points in basis assets basis points. quarter quarter basis net in points increased increased the interest-earning XX rate to

As early Steve impacted Legacy out earlier, on pointed Non-Agency redemptions positively MBS. yield was our asset by

impact basis basis of points. this, rate our declined points nine our spread XXX interest the to basis Excluding increased have would asset would yield eight X.XX%, to have and points

in interest continued to expectations XXXX. fall of Fed cuts growth rates quarter XX in Short-term fourth as XXXX multiple first XXXX to on in the and rate to of One-month activity. concerns quarter by points for In as lower response the points the basis the general about and year-to-date recently rate economic coronavirus basis and well impact LIBOR declined due XX of in XXXX.

well continues repo as falling from in benefit with MFA placed pay-fixed in are to low rates well one XXXX be about short-term asset was of rate XX%. of on at that is hedged XXXX remains and and financings percentage the based swaps placed to months our LIBOR three or most relatively

about our context, For declined XXXX, financing XXXX it of grew and rate repo a basis from by in end second XX whole the of year half the approximately half quarter basis beginning points XXXX. of the financing for of points financing of about repo XX to loan in at the repo as a

page the Turning we where for cost the allocated equity of our holdings, yields, as funds, asset as spreads well to XX, and class. show to each

largest loans it. carrying equity MFA's class well XX% to invested total equity as in be of at whole terms value with Our to continues allocated absolute approximately as dollar amount asset allocated of

quarter, increased increasing X.X compared MFA's our the of at quarter over year, equity. to whole in at in X.XX% class of on this the loans at loans debt-to-equity in around in with times times X.X addition, the asset asset for to carrying communication last in class our In whole this consistent the leverage fourth Whole while time. times quarter leverage majority value X.X equity to general allocation value, total of and of continue third fair the debt-to-equity including year the two-thirds the loans represent yielded throughout debt-to-equity quarter

the rate our at by XX, basis loans in quarter. interest Turning XXX end and asset a at where to basis we increased look in page whole to particular XX sensitivity. growth the portfolio, take low duration remained Due the at of our the our quarter points MFA's portfolio relatively points, but in fourth

the unchanged relatively Our in hedged was quarter. portfolio

quarter, As at basis XXX end points but remained of our relatively quarter. a the at duration in net increased low result, the fourth modestly the

Turning to page XX.

interest remains interest to continue move experience short duration, large of credit-sensitive over low to periods changes assets strategy a that is emphasizing MFA's interest important over interest while focused assets. on we As cycles through time, remember rate and and in maintaining rate-sensitive rates various it stable rate

consistently book has strategy the value. limited quarterly in Our changes

the to have Since we book decline chart. started the XXXX, page, As to the recently average value the our limiting MFA the as value to the of value power in book value, see has opportunities left as of can dark on By been quarter-over-quarter we arise. in added this have bars in we on with book book than X%. or changes staying change largest value they gray value new which the you believe bar Economic fluctuations, less take disclosing Economic will economic advantage X%, graph book book have

that, our with will in will the call about I Bryan, over talk detail. who And credit-sensitive more to turn assets

Bryan Wulfsohn

seems continues you, a to of XX. Mortgage Housing as credit elevated to accelerating historically Gudmundur. to page X.X%. attractive November Index price for growth Price housing at The plateaued and was by be low X% economic rates has fundamentals. unemployment in rate up Home again. mortgage Thank year level have from a remained continue borrowers. supported CoreLogic to is National turn Home ago. be affordability The Please

of supply steady continues homes The available march downward. its

performance. and levels we and home unemployment to should We expect low delinquencies as stability remain seen over combined prudent growth believe now to last we The haven't these below we good are reported underwriting low continue for ingredients in just delinquencies with standards XX-day factors are support X% All seeing loan prices. mortgage are could two decades.

page to XX. Turning

of loans billion consisting loans a $X.XX had $XXX billion in $X.X acquired $X.X We over in record approximately purpose business the of fourth of million non-QM in billion and of XXXX strategy in and quarter loan acquisitions. Our year loans loans.

options of over seasoned with levels origination we spreads absolute the management found didn't add our We versus less been and loan guidance partners our relationships and are portfolio many asset our new has with We and yield very attractive loans year, team. performance to developing origination purchase new growing and the partners. existing our the of seasoned as continue strong

Turning page to XX.

RPL continues well remained days perform XX% of than to remains portfolio portfolio XX stable. Our less our has delinquent. and

rates. almost XX% of have making in is of although addition, last quarter With our in financing access months. have payments retracement loans the prepayments the amortized remain In cost over options, these days an been the on as in are XX% so greater, with gaining positive. XX rates. far support of again fourth portfolio their Rates rallied dollar or improves Prepayment new delinquent $X.XX with should XXXX. That borrowers a even the prepayment credit speeds XX combined elevated moderate to

page to Turning XX.

oversight management quickly worked limit decisions exceptional of our of portfolio, the resolution. as with Our get The to loans and well team's in have has lines partners reperform, concert time servicing team servicing management enhanced reduce and to more returns. to active asset as

XX% loans REO purchased loans prior therefore, the This either year be are were liquidated. in nonperforming for slide more of performing have one ended XXXX are or full. year. for owned were either XX% liquidated are now still or purchase that that to in paid to than outcomes XX% shows status. at delinquent

effective have been either in have as modifications paid three performing full. are quarters Our or

time our at We of to assumptions these results continue the outperform purchase. are pleased they with as

range partners billion and origination is self-employed of with $X.X work as our Turning the period higher to including over types of successful to loans considered growth we with in structural our acquired such on. can to to We XXXX ratios over bank greater billion debt-to-income of so on or continue $X.X way the strategic another loan from use date, features, non-QM had UPB, be or such income for quarter as portfolio. a different than page of interest-only statements an non-QM and documented XX relationships. variety A borrowers have To term years XX.

further expected is believe approximately performed underwriting has option double-digit in and low and these has has assets are we The utilize days interest and to live currently able delinquent of we a range these with average in performance financing We ROEs The credit XXXX. to achieve we FICO loans portfolio improved the execution through to Securitization of expect X% on or weighted in with around Low warehouse of And XX as mid-X% of the this greater. year securitization. appropriate a a the low through XX% trade rate prudent. securitization loan-to-value and lines yields leverage as leverage. XXX. ratio loans attainable is that environment,

And now to turn you Gudmundur like to back walk loans. I'd business call to purpose over our the through

Gudmundur Kristjansson

Thank you, Bryan.

purchased commitments. Turning actively the acquire purchased we million undrawn have of loans business as fourth XXXX, acquiring to undrawn UPB and business we continued XX. quarter, or page in purpose We've billion the $XXX Since in in to started quarter. purpose and at we X,XXX approximately commitments approximately the loans end loans $X.X in UPB

our business and acquisitions our in purpose the are progress expect to expand future. We loans to of continue excited about

fourth UPB approximately At held the and additional $XXX the flip or million we billion end of undrawn of fix with commitments. $X loans quarter,

to cooperation and management remains with origination servicing strategy with respect acquisition unchanged delinquent loans. of underwriting strong Our standards with and partners

X% range. yield is high the for asset Our class in target this

grew performance and to the by portfolio remains million of end for $XXX $XXX Credit and in strong the metrics in the quarter at quarter. portfolio SFR million line our Our SFR with approximately expectations. fourth

for is low in range. target to this Our the asset mid-X% yield class

final for over some With that, comments. will Craig call the to I turn

Craig Knutson

portfolio billion the with you, that we to additional our capital billion. Please the has forward year billion early are $X.X to contribute in we materially assets loan quite move has strategy XXXX. portfolio to in structure and prescient whole together optimization to and summary, quarter earnings XXXX on be continue year, deployed active $X.X higher the page should and believe over This our as resulted in initiatives. income positioned we Gudmundur. whole last of We In by very turn loan in remain capitalize $X increasing beginning strategic that whole well The we into proven purchases these to Thank overall loan purchased the market. investment during fourth we in XX. growth interest

about We in move are eager XXXX. our optimistic to forward business and

would for This questions. presentation. open concludes Operator, please our call the up you

Operator

of to we'll Please Instructions] Suisse. the Harter [Operator with line Doug ahead. And Credit go go

Doug Harter

Thanks.

can XXXX, what's continuing add -- your -- accelerating to to whole you the the in kind pace you Or relationships we something that accelerate? to continue that is kind this that now As trend caused for have? given was expected the something quarter talk loans? fourth there of we're can we about Is new fourth of production expect

Bryan Wulfsohn

acquisitions, additional did Sure. the exceptional sources necessarily of have Doug, ample continue robust of in we in But be with – provide have quarter really still loans Will did partners loans. of a us have XXXX. relationships quarter it through but that our don't we now for believe and We we fourth we origination an loans know. maintain that through to strong? to our I additional runway always good with amounts sort have do

Doug Harter

thinking then looking to guess newer of raise Great. And growth, assets to I how I as fund production portfolio these additional forward, I guess mean into versus you're Non-Agencies further capital? you about that I are looking guess or rotation Legacy Agencies

Craig Knutson

So the -- question for thanks Doug.

capital with I think didn't XXXX, we certainly we acquisitions the thus that were So far in all that loan at constrained. least we feel did

capital little our In that the tick fact, leverage we you the that we optimized feel we had a said consistently had we I around already. think fully up didn't that bit. saw And structure capital

credit extent portfolio, the we've free because of are rotate maybe on leverage In up assets, that it of the asset other I shown into to of terms Agencies agency rotating classes, we've there to Unfortunately, capital. really done that much opportunities think out of that. out doesn't the that

free capital. tool. up it's much So a like But I said, doesn't certainly it that all

Doug Harter

you, Got it. Thank Craig.

Craig Knutson

Sure.

Operator

Please queue with And the line from the will ahead. Coffey Henry go Wedbush. question of next come in

Henry Coffey

morning Good quarter. Great Yes. everyone.

Craig Knutson

Henry. Thanks,

Henry Coffey

just to Fannie So be the fix improve quality abilities equation initiative I'm and where look when putting they Fannie for less that is enter very on QM different the economic with it's issue more are? investment business? those flip but the of the I there more As -- at efficient set? that Will capital that changes, to credit what know going in pricing into product? keep that. of one assets and horizon focusing and number of market there But that's big you and assets? the Freddie, rehab CRT. also I the opportunities you maybe know side It's emerging and Or obviously -- a it it's were the we'll opportunity said chasing into a wondering is or about a

Craig Knutson

to So say it's hard Henry.

shrinks I assets. think the GSEs. I but to pretty my as reform the it's to goes, least the sure footprint attempt won't space. for I it not remarks, is said continue GSE opportunities in those how reform for GSE we're That said, our little growth And continued competition -- more fix where envision investment extent origination There shrink and create rental footprint I to to think and hard in the think partners The grow. are of that most the at of that could non-QM we're single-family bit those seeing us. flip a

again, year strategic from two I I that or a are originators pay the in position that ago. a there these almost really good years standpoint. started initiative that's think us case ago than But a more our folks competitive think those now puts we with three to was where attention worlds

Gudmundur Kristjansson

are Yes. just look evaluate with and and very MFA flip and of I to mean space has good options resi plenty busy expanding fix there's foreseeable feel we runway for the been in to future. the a opportunities. for kinds we've the there's table the non-QM continue so like too. all I about -- and been the like would add we vocal on Craig all SFR But

Henry Coffey

CECL been looking of different does earnings CECL? different know How metric a or your sense to CECL earnings. it that us adjusted able in a your is give about to What that. exist, numbers? look GAAP ways and to I of we kind you problem SEC those capacity? be add are the a numbers, of -- has With going but at way of going to a to kind strict get be solving many dividend doesn't able to paying volatility very your about are past

Steve Yarad

Steve. for Henry, sure, it's question. Thanks Yeah. the

best sort of economic evaluating my the still in As way to to we in I as impact reflect go comments, alluded of sort the CECL our of we're forward. results

what -- because we only on a of halfway right we hard first will end the comment that CECL the quarter. the sense quarter our a of shake don't first little it's obviously good be to have we're at So to through really and now, haven't numbers out

But you're right.

but thinking that core We SEC earnings to comments. the are metric, reflect the about in how mentioned QX you

seen so We those well means whole. we as as that just as have think the topic evaluate a what we're as trying to for us about well

Henry Coffey

Great. Thanks. Yeah.

Craig Knutson

for any loss quarter non-tax item. during purchased a we and it's charge that Henry, item a our where income statement just to it's setup runs obviously model, clear, that loans a life-of-loan And through non-cash CECL be

I So, it and I and item tax works. say about as how But that a we're think -- either. not GAAP a that's understand item we guess, -- that we understand as we it's it's non-cash also that's it we

Henry Coffey

mean, earnings that economic us to a power enough a you is the $X.XX the pay $X.XX business that's dividend. if I book then and of dividend to your is stable cover obviously, that overall value message

Craig Knutson

think growth earnings. results drive Yeah. think to especially think loans, that a the while many that And And line up income out acquire right? two quarter. interest was to it. in pointed that, And I whole from XXXX but sequentially we've been takes some it I for you're I portfolio years we starting real see And probably you saying each will saw

Henry Coffey

Super. Thank you.

Craig Knutson

Henry. Sure,

Operator

question Eric go next line here from come ahead. our the And of will KBW. with Please Hagen

Eric Hagen

your Thanks. capital One guys. Good morning. on structure. Hey, question

make would shareholders? just that incentive to accretive capital MFO your preferred and soon baby next need bond and be the as curious call guys your redemption equity I'm it to in for you month. You for guys have refinance what up as to rate

Craig Knutson

those opportunities. suffice so Eric. markets of those the on And and year. from of thanks been aware this we're us to So question have say active what's we're for far on top Obviously going away

Eric Hagen

Okay.

how And how I delinquency but in to those probably your the in performance non-QM detail be really the line Okay. is -- additional curious delinquency very should shakes but proportional out. portfolio will portfolio, be loans? rates of we portfolio? continue stable, credit segment the the appreciate that Just the the and item to level we servicing think that that expenses about for of in that to going agree costs on think servicing I

Bryan Wulfsohn

It Thanks the acquired. loans non-QM relates it as -- the depends to assets new how the origination really for really of it for question. servicing the are the some Eric. where expense If acquire servicing don't and acquired loan, the servicing Hey, similarly assets going side we coupon we really that runs expense and no is just runs there that is to through really see through. that you through. -- income own run the net it's expense them net, the the are If

-- it it's the So is really how just acquired. on asset depends

Eric Hagen

Okay. in of sort servicing really costs those But loans? level proportion for delinquency of the question did increase to is my nature the of though

Bryan Wulfsohn

if if we're not the – So is we're especially, really. loan retained. -- so buying servicing Because buying

the service of -- is delinquent strip baked whether a there So problem that the it's to retains. fixed And servicer them not a strip -- loan more their that's cost. -- sort a expensive goes that that if for into that's it's

doesn't it increase incrementally increase our -- So expense. servicing

Eric Hagen

Got it.

you. really That's Thank Okay. helpful. Thanks color. that for

Bryan Wulfsohn

Yeah. Sure.

Operator

Raymond Laws the at James. ahead. Please of line with we're And Stephen go

Stephen Laws

Good Hi. morning.

Craig Knutson

Hey, good morning.

Stephen Laws

Kind at think forward. capacity percentage pipeline And do that? Is you bit what Or what going something little that just five choosing currently is is pipeline -- Do it on of then than of grow acquire? Are you you you less you currently that like a XXX%? Doug's how the from? looking your you're investments follow-up and to that wanted said originators their it questions you'd origination partners. do the about non-QM to look I the of loan guys the in to I increase?

Craig Knutson

Sure. Thanks for the question.

originators So It's buy five five loans originators a we've originators that as we capital more in. the have far from. than we five as that lot made investments

would production. probably anybody's of the production cases, buy, of XX% buy most we from in don't as most we As what we even originators. percentage say far don't buy XXX% the I of

And I it not we'd as that's I'm want ever sure think at to be XXX%. be. should

have they're hard is, that product and what to most the say although, I the types it's it's continuing say take exactly so, those will across give all to that of So or we part all the XX all probably with originators or pipeline for grow. relationships

precision, can yeah. think, pretty we're So, it's any that although, with forecast again, we I not optimistic, something

Stephen Laws

as you know there's And think on as securitization think the savings a using? that you're be as financing pricing deals what potential savings about the be as cost have similar you the the and provides, the number that using would do think or in well the what would with you side, where that to potential current that financing securitization? about -- collateral but -- how Kind structure about benefits leverage cost I the versus of would similar in of benefits

Bryan Wulfsohn

Sure.

the when sort mark-to-market it us bit non-recourse, of the leverage to loans to leverage, non we financing gives the relates confidence a take-up it having As just on repo. have of versus sort

considered bit the So where years, to quarters -- and under-levered. many past, a of we sort of over be we however, said sort ourselves

really sources coming have of really you that you're So where incredible your too -- when amounts from financing are not because concerned you're under-levered liquidity. about

okay to maybe think format. securitization-like I grow that's continue use about a lines the you you financing into when As and should portfolio warehouse diversify sources the

down but not of previously, XX see portfolio. basis in there grow of the sort basis points meaningful points of the order -- they they're much were for are has to points dramatically the we as to to option terms still as they're a it come cost spreads good where savings XX given LIBOR In as XX to as do But as us we around. basis moving be continue

Stephen Laws

do much Or there? about do of retain? And you The bigger how Yes. it or X% think of retain guys you to the how bottom you'll a intend piece would what stack?

Craig Knutson

on as attractive an down on therefore at point to think right? asset. starts down the So we we're it And those. like really look looking I some looks deeply look the to consider sell like depend yields stack And liability. and So it an at it would how expensive pricing,

There's retain about certainly X% that for If we'll number. So that. than no I guess that's would to we more of had just magic sort think I how guess sure.

Stephen Laws

little so ATM a in you was But bit ATM I And Great. covered much? utilized put I that. you then reallocating ATM agency that play. capital? guys color we about using we forward? said the you there's how And know Okay. how back but should lastly appreciate about it in portfolio. how minimal it the the on Have versus do the think -- equity it's year-to-date? on going think If

Steve Yarad

back did let it the for the third we put the lapse ATM number of a Steve. I years. in And we place of Yes. in Thanks, mean had quarter year.

we file just be will So minimal tool XX-K usage. expect which add XX-Q of quarter it to did -- to third date terms another forward carried later a and our that to really in to some in the really We usage been toolbox. little It's did of we very disclosure to our today. our

here. roughly was from going memory just it think -- I'm I

roughly think million I about it's shares. one

say, going we'd toolbox. So at But And to tool the this that usage sense minimal suffice it's use forward. in do point. to that it we a when very could -- makes

Stephen Laws

the Right. Appreciate time.

Steve Yarad

Stephen. Thanks,

Operator

with And we'll will come JPMorgan. go the to Please It next Shane ahead. Rick from go question.

Rick Shane

years several investment of portfolio guys. for validates shift taking at Thanks we Craig's Look, this question my of actually really am terms think, flows. you're the is whether is or Hey, able returns be XX of the portfolio to and risk credit the it over same you I morning. I you shifts Will look prescient curious in return same the about in slide and that description controls? last the the as sort leverage? trade-offs risk building characteristics achieve the of maintain terms the how when think

Craig Knutson

thanks the think question, short yes. Rick. the is, mean I for I So answer

are in loans them very think are these credit originated buying investments. in new had at we Because was investments we're clearly a these been and started buying have when discount and different These loans. these different are Legacy at credit years look right? XXXX our newly exposure we've and Non-Agency mortgage the and world. it made I XXXX a before to back past that We're -- we that it's as and -- from

increase? day of I think across so mid around We've the I this origination start a instance been in wide portfolios can't pretty certainly of protection. somewhat They're long if the change. will at I very LTVs tell LTVs we'll are right? enough I'm And say to to happy And biggest at look have low see fashion. high And time eyes think the in we those look your XXs do if LTVs -- we're or jaded our to you so. for that's cognizant because the over end open you but to

will -- far I leverage think don't think all leverage the leverage that as materially. I the change And as

more think we I years XX% or between loans asset given probably probably if times a repo was mathematically leverage our haircut this If and X times go it's it's class. you for than line be little securitization. from couldn't X makes levered. times really might Bryan securitization We us bit deviating back that's see mid-Xs. get don't And said it appropriate as to X and and more warehouse then borrowing of much a maybe through low comfortable. more Xs sort But I

Rick Shane

your to Got to it. RPL/NPL we the are loan portfolio grow And is look MBS obviously, would We you you to the question opportunities likely trends, whole Legacy do and core get widening be the see that opportunity expect MBS portfolio something But the opportunistic Is an continue in that and MSR the Agency have when understand flex would what consider what you or based still contracting I that's we grow. other upon spreads to I'm one the going I is guess to will continue at terrible. portfolios? shrink. look saying.

Craig Knutson

day. earlier, I Gudmundur the think, every say, as is everything said I on think, we table

in all happen will so. the what forecast, these next various over or possibly year can't we classes, asset So, with spreads

But we better to not side, That means. we're at could that agency risk the allergic change. clear mortgages any least past. the we've see a And choice that characteristics said, by think, return made mortgage in on I credit

Rick Shane

you much. Thank very

Craig Knutson

Thanks,

Operator

to of with Delaney ahead. Steven go JMP we'll Please And line securities. go

Steven Delaney

seeing there. if the congratulations mortgage I'd like the especially NQM Stephen on private this, in a you your out and I'll Steve, Thank on, color ask -- loans. BPL but touch question us some give of of originators strong what you in products year, universe you're and whole on I'll for could to

are it's that counterparties? limited product? very shops mean, phone potential number are and industry. Are you more up, you a seeing is relatively Or offering in coming it entrepreneurial circo? new seeing But a Thanks. still of down I the picking up

Craig Knutson

you the if are there. there are space. wouldn't there would out I lot -- So, entrants them non-QM are say guess, a non-QM, new of I of easily there dozens in say, said take I That

Steven Delaney

it, Thank That's Craig. helpful you. dozens. know That to frames

Craig Knutson

don't we of don't a But lot I -- new entrants there. see

purpose there and the business side, fix hundreds could out be -- the them flip of On particularly there. there's probably

are lot small. a them of And very

are bigger but space. there are in a It's players, fragmented a And so of space, it's lot -- players. some there that very

Steven Delaney

idea. your originators you assume over how whether have than any us last just or five. give That's different you've strategic helpful. I sense rough you from a you loans the many from the more have worked years, it's with BPL of just originators Can may several in terms NQM partners And bought

Craig Knutson

Sure.

I investments -- earlier, the said but transact in we've that originators, we so XX. capital five made with So about

Steven Delaney

Okay.

Craig Knutson

a XXX. So it's We're conduit. not not

Steven Delaney

Understand.

Craig Knutson

we the know the somewhere probably And the all is number very vicinity entities well. in But of XX.

Steven Delaney

sale helpful. read of fairly of one you curious if large whether York I'm I fund. counterparty. we early New -- know That's And know or to recently of originators with just significant. NQMs that and credit But saw they were don't business the did the I of a

I'm of of will the that no-name any obviously, just buying XXX% this Do be the investors? to still it have to they selling control other product flow? of entity basis. whether you a And whether ownership, do you buyer despite asking idea on it's, Or is change the -- think

Craig Knutson

Sure. Sure.

obviously familiar we're So with that.

production, but to it's we'll happens see. tell probably think, I to too what soon that

Steven Delaney

and you've been you Is into see to way still see opportunity, to the you do your -- it And the having But in -- the yourself? business ahead sort of outlook? be origination Is still consistent. terms that objectives just go able of and the going go still you'll without Okay. the to the I'm ask. that market accomplish

Craig Knutson

mean, think happy strategies, I made partnerships. I -- the But sale. never -- that. far, looked we've at we've that have those I And we've we'll say think, so companies for strategic with where some Yeah. we I'll do pretty never we're deployed some

strategy opportunity some we'll future we're time could bought again never haven't but company, We've made investments. so some far. with never the say pretty there deployed happy the an but I capital in think be we that But we've a

Bryan Wulfsohn

we Right and we prior, different Steve, remember, if mentioned XX with XXX% contract partners. as of Craig buy an entity

sudden So one if of of buy we all of a of the XX thinks one them us… other

Steven Delaney

Absolutely.

Bryan Wulfsohn

relationships cognizant very all of we're with good our …So maintaining of partners.

Steven Delaney

doing working. what is Well, you're

So keep comments. for thanks work. good the up the And

Craig Knutson

Thanks, Steve.

Operator

And in queue. for -- currently further questions no

Craig Knutson

for Okay. you I next we'll us. everyone joining to want thank to And quarter. again, speak

Operator

X you. and replay gentlemen, for Thank after ladies through running be and XX And today, conference at available o'clock this will May midnight.

parties system the may You the access can dial XXXXXXX. code time or the XXX-XXX-XXXX. with dialing and access access AT&T XXX-XXX-XXXX, any XXXXXXX. Those again, code replay at X-XXX-XXX-XXXX number entering X-XXX-XXX-XXXX International by

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MFA Financial (MFA) 20 Feb 202019 Q4 Earnings call transcript